2012 Offshore Account Criminal Tax Cases

The Department of Justice continues to prosecute cases involving United States taxpayers who have failed to report their interests in offshore accounts. Most of the cases are for large offshore accounts, but they provide good guidance for what the US government looks for in such cases.

Below is a summary of developments in these cases this year.

United States v. Berlinka, 12-CR-002 (S.D.N.Y.): On January 3, 2012 and as reported by BNA Daily Tax Report, a federal grand jury in New York indicted three Swiss men working as client advisers to a Swiss bank for allegedly helping U.S. taxpayers hide more than $1.2 billion in assets. Michael Berlinka, Urs Frei, and Roger Keller, along with others not named in the indictment, were charged with conspiracy to defraud the United States, impede the Internal Revenue Service, and evade income taxes. The case was filed in the U.S. District Court for the Southern District of New York and assigned to Judge Jed Rakoff. According to the Indictment, the three advisers worked for the Zurich branch of “Swiss Bank A” (later disclosed to be Wegelin) which began actively recruiting U.S. customers in 2008 after another bank, UBS AG, lost U.S. accounts due to an IRS investigation and eventual litigation.

United States v. Michael Reiss, 11-CR-00668 (S.D.N.Y.): On January 11, 2012, Reiss was sentenced to one day of imprisonment for one count of willful failure to file reports of foreign bank and financial accounts. His sentence also included three years of supervised release, the first eight months to be served in a community confinement center. According to a press release by the Department of Justice, Reiss, a Princeton, New Jersey, doctor, professor, and researcher, took steps with his Swiss financial advisor to change both the deposit institutions and the names under which his assets in Swiss accounts were held in order to avoid their detection. As part of his medical practice, Reiss was a physician and researcher on cancer. Reiss’ sentence also included 30 hours of community service. Reiss’ total tax loss as stated in the Judgment was $458,550, which included interest. According to a Department of Justice press release, Reiss also paid a civil penalty of over $1.2 million.

United States. v. Heller, 11-CR-00388, (S.D.N.Y.): On January 20, 2012, and as reported by Bloomberg, Kenneth Heller, a disbarred New York maritime lawyer, was sentenced to 45 days in jail and two years of supervised release for using an offshore UBS AG account to hide income from U.S. tax authorities. Heller, 82, who pleaded guilty to three counts of tax evasion for the years 2006, 2007 and 2008, was sentenced U.S. District Judge Kevin Castel. The parties agreed that the amount of taxes Heller avoided was between $400,000 and $1 million. Heller, who faced as long as 15 years in prison, has cancer, memory loss and other physical and mental problems, according to a defense filing in which his lawyers asked that he not be imprisoned. Heller previously had agreed to pay a fine of nearly $10 million for hiding $26 million in a secret account at Swiss bank UBS AG.

United States v. Kerr, 11-CR-02385, (D. Ariz.): Phoenix-area businessmen Stephen M. Kerr and Michael Quiel and former San Diego attorney Christopher M. Rusch were charged in Phoenix with conspiracy to defraud the IRS for allegedly concealing millions of dollars in assets in numerous secret Swiss bank accounts held at UBS and elsewhere, the Justice Department announced on January 30, 2012. The charges are contained in an unsealed indictment originally returned by a federal grand jury on Dec. 8, 2011. According to the Justice Department PressRelease, Kerr and Quiel were each also charged with filing false individual income tax returns for tax years 2007 and 2008 and failing to file Reports of Foreign Bank and Financial Accounts (FBARs) for those same years. Rusch was arrested the previous day by U.S. law enforcement agents in Miami after being removed from Panama by Panamanian authorities at the request of the United States. Quiel was also arrested in the Phoenix area as well.

United States v. Wegelin & Co., 12-CR-00002 (S.D.N.Y.): On February 2, 2012 and as reported in the BNA Daily Tax Report, Wegelin & Co., the oldest Swiss bank, which was founded in 1741, was indicted for allegedly conspiring with U.S. taxpayers to hide more than $1.2 billion in secret accounts from the IRS. Seizing more than $16 million from Wegelin’s bank account in the U.S. under civil forfeiture laws, the Justice Department said Wegelin had been charged in the U.S. District Court for the Southern District of New York with participating in a conspiracy with three client advisors who have already been charged. Although Wegelin has no banks in the U.S., it is accused of using a UBS AG account to carry out the conspiracy, which involved opening and servicing dozens of undeclared accounts for U.S. taxpayers to capture clients who were fleeing UBS after news broke that IRS was investigating that Swiss bank. According to the indictment, Wegelin told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to U.S. authorities because the bank had a long tradition of secrecy and that the lack of offices in the United States made the company less vulnerable to U.S. law enforcement pressures.

United States v. Beck, 12-CR-211 & United States v. Thomann, 12-CR-212 (S.D.N.Y.): On March 13, 2012 and as reported by Reuters, Prosecutors in New York indicted two Swiss financial advisers, one a former private banker at UBS AG, on charges of conspiring to help wealthy Americans hide $267 million in secret bank accounts. In separate indictments, one of them alleging that a child was used to carry cash to a client, charges were brought against Josef Beck and Hans Thomann. The indictment said that Beck worked at Beck Verwaltungen AG, an independent advisory firm in Zurich, from the late 1980s to 2010 and Thomann was a client adviser at Swiss-based UBS from 1993 to around 2003, then later worked at a series of unnamed Swiss asset management firms. Both live in Switzerland.

United States v. Hoess, 11-CR-154 (D.N.H.): On March 29, 2012, Lothar Hoess, 64, of New Hampshire, was sentenced to three years probation, eight months of which will be served as home detention with electronic monitoring, after pleading guilty to one count of failing to file required documentation with the Department of Treasury for the years 2005 to 2008, and admitting he concealed assets held in Swiss banks, including UBS AG. According to a U.S. Attorney’s Press Release, Hoess admitted that between 2005 and 2008, he failed to file the required FBARs and did not otherwise disclose to the IRS his interest in, and control over, the UBS accounts. Hoess agreed to pay a civil FBAR penalty of $1,372,774, which represented 50% of the highest year end balance in undisclosed accounts for those years.

In the meantime, while new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.